Allstate 2008 Annual Report Download - page 223

Management’s Discussion and Analysis
of Financial Condition and Results of Operations–(Continued)
Financial Ratings and Strength The following table summarizes our debt, commercial paper and
insurance financial strength ratings.
Standard
Moody’s & Poor’s A.M. Best
The Allstate Corporation (senior long-term debt) A3 A- a-
The Allstate Corporation (commercial paper) P-2 A-2 AMB-1
AIC (insurance financial strength) Aa3 AA- A+
Allstate Life Insurance Company (insurance financial strength) A1 AA- A+
Our ratings are influenced by many factors including our operating and financial performance, asset quality,
liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as
catastrophes and the current level of operating leverage.
On February 2, 2009, A.M. Best affirmed The Allstate Corporation’s debt rating of a- as well as the A+
financial strength ratings of AIC and ALIC. A.M. Best also affirmed the commercial paper rating of AMB-1. The
outlook for all ratings remained stable. In October 2008, A.M. Best had downgraded The Allstate Corporation’s
debt rating to a- from a. On January 29, 2009, S&P downgraded the rating for The Allstate Corporation to A- from
A+, the financial strength ratings for AIC and ALIC to AA- from AA, and the commercial paper rating of The
Allstate Corporation to A-2 from A-1. The outlook for all ratings remained negative. In October 2008, the outlook
had been revised to negative from stable. On January 29, 2009, Moody’s downgraded the rating for The Allstate
Corporation to A3 from A2, the financial strength rating of AIC to Aa3 from Aa2, the financial strength rating of
ALIC to A1 from Aa3, and the commercial paper rating of The Allstate Corporation to P-2 from P-1. The outlook
for all ratings was revised to stable from negative. In October 2008, Moody’s downgraded The Allstate Corporation
to A2 from A1 and the financial strength ratings of ALIC to Aa3 from Aa2.
We have distinct and separately capitalized groups of subsidiaries licensed to sell property and casualty
insurance in New Jersey and Florida that maintain separate group ratings. The ratings of these groups are
influenced by the risks that relate specifically to each group. Many mortgage companies require property owners
to have insurance from an insurance carrier with a secure financial strength rating from an accredited rating
agency. Allstate New Jersey Insurance Company and Encompass Insurance Company of New Jersey, which write
auto and homeowners insurance, are rated A- by A.M. Best. Allstate New Jersey Insurance Company also has a
Demotech rating of A’’. On October 29, 2008, A.M. Best placed The Allstate Corporation’s subsidiary in Florida,
Allstate Floridian, under review with negative implications based upon the uncertainty regarding the FHCF’s ability
to fund its reimbursement obligations. However, as no catastrophes occurred through the end of the season,
A.M. Best removed Allstate Floridian from review and placed it on negative outlook while affirming its rating of
B+.
Effective May 8, 2008, ALIC, AIC and the Corporation entered into a one-year Amended and Restated
Intercompany Liquidity Agreement (‘‘Liquidity Agreement’’) replacing the Intercompany Liquidity Agreement
between ALIC and AIC, dated January 1, 2008. The agreement allows for short-term advances of funds to be
made between parties for liquidity and other general corporate purposes. It shall be automatically renewed for
subsequent one-year terms unless terminated by the parties. The Liquidity Agreement does not establish a
commitment to advance funds on the part of either party. ALIC and AIC each serve as a lender and borrower and
the Corporation serves only as a lender. AIC also has a capital support agreement with ALIC effective
December 14, 2007. Under the capital support agreement, AIC is committed to provide capital to ALIC to allow for
profitable growth while maintaining an adequate capital level. The maximum amount of potential funding under
the intercompany and capital support agreements is $1.00 billion.
Allstate’s domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial
statements in conformity with accounting practices prescribed or permitted by the insurance department of the
applicable state of domicile. Statutory surplus is a measure that is often used as a basis for determining dividend
paying capacity, operating leverage and premium growth capacity, and it is also reviewed by rating agencies in
determining their ratings. As of December 31, 2008, AIC’s statutory surplus is approximately $13.0 billion
compared to $18.0 billion at December 31, 2007. These amounts include ALIC’s statutory surplus of $3.2 billion at
December 31, 2008, compared to $2.6 billion at December 31, 2007. The decrease is the result of dividends paid
to The Allstate Corporation, net loss and unrealized losses on equity securities and investments in ALIC.
We have received approval from the Illinois Division of Insurance for the use of two permitted practices in the
statutory-basis financial statements related to areas in which statutory accounting is not reflective of the
underlying economics during this period of extreme market conditions caused by the current economic crisis. The
first permitted practice relates to the statutory accounting for deferred taxes and applies to AIC and ALIC.
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MD&A